More FPL profit, more risk for customers

Last December, the Public Service Commission allowed Florida Power and Light to get into the natural gas production business, through a fracking venture in the Woodford Shale region of Oklahoma with a company called PetroQuest. For the first time, the commission allowed a regulated energy monopoly to enter an unregulated energy business with financial guarantees that apply to regulated monopolies.

FPL got to bill customers for its fracking investment, even if the venture produced no gas, under the same “fuel cost recovery” rule that allows it to bill customers for work on nuclear plants that the company never may build.

The commission left undecided, however, the question of whether FPL would need approval — which would mean justifying its costs and the need — before each new fracking venture.

FPL wanted blanket approval. The Florida Retail Federation objected. So did the Office of Public Counsel, which represents consumers, saying in a brief to the commission that approval “would open the door for every other investor-owned utility to seek a risk-free way to expand its rate base without a determination of need and without much scrutiny.”

The Public Service Commission staff agreed. In its recommendation to the five commissioners for last week’s hearing, the staff noted that what FPL wanted “has never been done before in Florida or by any electric utility in the country.” Like the commission, the staff usually sides with utilities on big issues. In this case, though, the staff recommended that the commission deny the request “without actual experience of how these non-regulated investments will perform and the magnitude of costs FPL will seek to recover.”

Yet the commission not only ignored the staff recommendation, it ignored the recommendation unanimously. Even Art Graham, the lone dissenter in December against the original $191 million fracking venture, sided with FPL.

In a statement, FPL said, “We appreciate the commission’s thoughtful approach to our proposal. With the approved guidelines, we will be able to work toward obtaining more essential clean natural gas directly from the source, generating additional savings for our customers and helping protect them from the risk of fuel market volatility.”

FPL said the company began receiving gas from the Oklahoma project in March. Over 30 years, FPL said, that venture will mean a fuel savings for customers of between $50 million and $100 million.

In fact, FPL customers already had been protected from “fuel market volatility.” FPL can raise its fuel surcharge when the price of oil and gas spikes, but the company must lower it when the price falls. The existing fuel cost recovery system is not designed to raise FPL’s profits.

That system, though, applies to FPL’s purchase of gas and oil from outside sources. The system did not envision a utility producing fuel. With the commission’s ruling last December, FPL can profit not just from investment in energy generation — which Florida regulates — but from fuel production — which Florida does not regulate. And as Public Counsel J.R. Kelly said in an interview, “100 percent of the risk is on the ratepayers.”

As usual, the commissioners made small changes, trying to appear less like an FPL subsidiary. They limited FPL’s annual fracking investment to $500 million; the company had asked for $750 million. In three to five years, the commission will review the rules for FPL’s natural gas exploration, to see if any should be revised.

Still, the commission has allowed FPL a new revenue source that the Office of Public Counsel estimates will bring the company about $32 million per year. A company spokesman declined to discuss profits, saying they “would depend on actual investments.”

In December 2012, the commission allowed FPL to raise its base rate — the main source of the company’s profit — but freeze it until 2017. The decision on fracking, however, gives FPL a new profit source even before any new request to raise the base rate.

The formal order from Thursday’s ruling will be ready next month. Once his office reviews it, Kelly said, he “almost certainly” will appeal to the Florida Supreme Court. The office may ask to consolidate this new appeal with its earlier one challenging the December ruling.

In both cases, the Office of Public Counsel will argue that Florida law does not give the Public Service Commission jurisdiction over unregulated activities by utility companies. The commission’s authority, Kelly said, extends only to generation, distribution and transmittal of energy, not production. Oral arguments could take place in November or December.

FPL has argued that its investments in newer, gas-burning plants and now its investment in gas exploration benefit customers by increasing efficiency and saving on fuel. That model will hold as long as gas prices stay low. If they rise, FPL and its stockholders will have more protection than customers.

By producing gas, FPL claims to be “innovative.” The company’s real innovation is finding ways to profit from ratepayers and getting so-called regulators to go along.